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News July 2017

Washington Watch

Greed and Fraud vs. Medicare: How a Few Changes Could Help the Government Fraud Fight

By Alan M. Schlein

In Los Angeles a few years ago, one medical center recruited homeless people off the street to fill their empty beds, offering them cash and medications, plus clean sheets and three square meals a day, while billing Medicare tens of millions of dollars for their stay.

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The Social Security number issue will finally change next spring when Medicare is scheduled to start sending out new cards that replace your SS number with a randomly generated beneficiary identifier. The government will start sending out new cards next April with all cards scheduled to be replaced under a Congressional deadline of April 2019.

Warning: This story may raise your blood pressure. For sure, it raises troubling questions about the U.S. government's ability to manage a medical bureaucracy.

Medicare, the government insurance program that provides health care to 55 million elderly and disabled Americans, continues to provide a steady income stream for criminals who are regularly finding innovative ways to steal a good sized chunk of the half-trillion dollars that are paid out annually by the program.

This comes despite strong efforts by health investigators and Justice Department prosecutors to crack down on fraud against Medicare. Some efforts to change things are brewing on Capitol Hill as well as a big recent move by Medicare.

The numbers are staggering since health care is a tempting target for crooks. Medicaid, the federal-state program for low-income adults, children, elderly adults and people with disabilities, spends $545.1 billion a year. Medicare spends $646.2 billion, both using 2015 numbers, the latest available. Total health spending in America is a massive $3.2 trillion, or $17.8 of the Gross National Product.

No one knows for sure how much of that is embezzled. But the best estimate came out in 2012, when Donald Berwick, a former head of the Centers for Medicare and Medicaid Services (CMS), and Andrew Hackbarth of the RAND Corporation, calculated that fraud – and the extra rules and inspections required to fight it – added as much as $98 billion, or roughly 10%, to annual Medicare and Medicaid spending and up to $272 billion across the entire health system.

The Government Accountability Office (GAO) estimated that in 2014, $60 billion of American taxpayer money, or more than 10 percent of Medicare's total budget, was lost to fraud, waste, abuse and improper payments.

 

All You Need Is Greed – And a Few Facts

In most cases, what is needed to defraud someone are the names and IDs of legitimate Medicare patients, including people's names, Social Security numbers, addresses and dates of birth so scammers can bill Medicare for services that never occurred. Getting Social Security numbers has been relatively easy, since Medicare still uses your Social Security number as your ID number on your Medicare card. Medicare recently said it plans to change that.

According to a Wired magazine story in 2016, since 2007, more than 2,300 health care providers have been charged with stealing from Medicare, and over 1,800 have been convicted for felonies that include claiming "phantom services," or services that never occurred.

Scammers are constantly coming up with variations on ways to take money from Medicare. For the past decade, the biggest scams have involved people setting up fake "offices" that were theoretically providing wheelchairs and other expensive equipment to Medicare patients.

These swindles have included people faking occupational licenses, writing sham prescriptions and billing Medicare for unnecessary medical procedures. In Los Angeles a few years ago, one medical center recruited homeless people off the street to fill their empty beds, offering them cash and medications, plus clean sheets and three square meals a day, while billing Medicare tens of millions of dollars for their stay.

A 2015 GAO report found another twist. The hoaxers took advantage of a Medicare rule that says to get paid, Medicare doctors have to bill from the actual office where they practice medicine. But the report continued to find issues with address registration among enrolling physicians. Instead of the mail going to doctor's offices, clinics or hospitals, investigators found mail at hamburger stands, vacant lots and mailbox shops, just a few of the some of the 23,400 potentially fake or bad addresses on Medicare's list of health care providers.

Three previous GAO reports and several Congressional hearings brought attention to the need for Medicare to get tech savvy. It's unclear if Medicare has managed to solve this problem, although the U.S. Postal Service has a computer database that removes fake addresses, which Medicare could use to help solve the issue.

One more astonishing spin on an old scheme has also surfaced as the newest variation on Medicare fraud. A whistleblower lawsuit charges that two Florida insurance companies, Freedom Health and Optimum HealthCare, both based in Tampa, allegedly inflated fees by making patients appear sicker than they were, using a payment formula known as a risk score, which has been in use since 2004.

That resulted recently in the two Medicare Advantage (MA) insurers agreeing to pay nearly $32 million to settle a case in which they exaggerated how sick patients were and took other steps to overbill the government. In some cases they claimed patients had been treated for medical conditions they either did not have or for which they had not been treated.

Overspending tied to inflated risk scores has repeatedly been cited by government auditors. But now, an even larger case has recently emerged. In May, the Justice Department accused the giant insurer UnitedHealth Group of overcharging the U.S. government by more than $1 billion through its MA plans.

Here's how it allegedly gamed the system, according to whistle-blower Benjamin Poehling, former finance director for UnitedHealth Medicare and Retirement. He says UnitedHealth routinely combed through millions of patients' medical charts, searching for data it could use to make patients look sicker than they really were, in what the lawsuit called "strictly a one-sided revenue generating program."

Finance directors like him monitored projects that UnitedHealth had designed for fraud by scouring patients' health records electronically and finding ways to goose the diagnosis codes. The sicker the patient, the more UnitedHealth was paid by Medicare Advantage. "They've set up a perfect scheme here," Mr. Poehling said in an interview. "It was rigged so there was no way they could lose."

Traditional Medicare reimburses doctors directly for procedures they perform, but that can promote unnecessary treatments and inflate costs. So MA was set up differently. Instead, the government contracts with for-profit insurers to manage health care for the elderly and pays insurers a yearly fee for each member they enroll. That fee is higher for patients recently treated for certain conditions which creates an incentive for MA insurers to search for diagnoses of illness in their patients, even where none may exist.

 

Bringing Medicare into the 21st Century:

Part of the reason these frauds persist may be that Medicare is using 20th century technology in the 21st century.

  • Medicare still sends out paper statements to its beneficiaries. The federal government still uses Social Security numbers as the main identifier for the 58 million Medicare recipients despite a dramatic increase in telemarketing fraud to seniors. In fact, since Medicare was started in 1966, there have been no changes to the actual paper cards that people use to access services.
  • Under a "pay-and-chase" policy for payment, the government pays out claims first and asks questions later, after the money has already been spent. So Medicare continues to have no way of approving transactions before paying providers. The program also lacks the ability to electronically confirm when a patient actually receives care.

Under the Obama administration, Medicare instituted a Fraud Prevention System that uses predictive analytics to identify troublesome billing patterns and outlier claims for action, similar to systems used by credit card companies. The agency has found $820 million in improper Medicare payments in the first three years. But there's still the issue of how to recover the money, which has already been paid out.

The Social Security number issue will finally change next spring when Medicare is scheduled to start sending out new cards that replace your SS number with a randomly generated beneficiary identifier. The government will start sending out new cards next April with all cards scheduled to be replaced under a Congressional deadline of April 2019. It will take that long because this is a big, complex bureaucracy and replacing the cards is very expensive. In 2011, officials estimated that replacing the cards would cost between $812 million and $845 million.

 

What about Using Smart-card Technology?

With all of the effort to change the Medicare card to confront fraud, a small bipartisan group of lawmakers on Capitol Hill are pushing an idea that might significantly help. Reps Peter Roskam, R-Il., and Earl Blumenauer, D-Ore., are expected to re-introduce a bill they've tried before – without luck– to modernize the Medicare card by creating a pilot program to test upgrading the current paper card to one equipped with computer chips and the technology used to authenticate chip-card transactions – just like the new credit cards everyone changed to since 2015.

Social Security rolled out benefit payment cards with chip-and-PIN security technology, one of several steps aimed at improving payment security by the Obama administration in 2014. But Medicare continues to use paper.

An upgraded chip-card would allow Medicare transactions to be verified electronically, thereby ensuring that when Medicare pays for a service, the patient actually receives the care. It would also help protect the personal information of Medicare beneficiaries and prevent fraud.

This single step – making the Medicare card into a "smartcard" – could significantly help save the entire future of Medicare, which Republican House Speaker Paul Ryan, R-Wi., regularly warns "is going broke."

Right now, the Justice Department uses its limited resources to go after the big-ticket fraud cases, but meanwhile, millions of dollars continue to be wasted on improper payments. "Think of it like someone's taking three dollars out of your bank account," on a regular basis, argues Kelli Emerick, the executive director of the Secure ID Coalition. "It's probably not enough to call the bank (to report), but when it's happening to millions of people, that's billions of dollars every year that's unaccounted for and that's a real problem."

 

New Solution for Old Problem

Using Social Security numbers has been an identity fraud vulnerability for seniors for a long time. If you've ever had a SS number stolen, you know how immediate and huge the financial and legal consequences are and how long it takes to untangle. The federal government says there's been a 24 percent increase in ID fraud cases against seniors from 2012-2014 where 2.6 million incidents were recorded, according to the most current statistics from the Department of Justice." But privacy analysts suggest those numbers are extremely low.

Since about 2005, most states have eliminated Social Security numbers on driver's licenses. Private health insurance companies long ago changed from using Social Security numbers as their identifier. But Medicare has been a reluctant holdout. That's in part because health care transitions can be notoriously tricky for the federal government. Remember the "Obamacare" computer system that didn't work initially or the Medicare drug program rollout when millions of low income seniors couldn't get their prescriptions filled initially?

Medicare chief Seema Verma said the Trump administration is aiming for "a seamless transition." At that time, there will be instructions to destroy your old card after you get the new one which can be used right away. The new government form will be called the MBI, Medicare Beneficiary Identifier. So far, no final prototype of the new card has been unveiled, but the MBI will have 11 characters, a combination of randomly generated numbers and upper-case letters. That is designed to easily distinguish it from the familiar Medicare number, which is based on Social Security numbers.

 

[Also contributing to this column were The Economist, Kaiser Health News, the NY Times and the AP.]

Alan Schlein runs DeadlineOnline.com, an internet training and consulting firm. He is the author of the bestselling “Find It Online” books.

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